Israel and the United States have reached an agreement allowing Tel Aviv to build about 2,500 housing units already under construction in West Bank settlements, a leading Israeli newspaper reported on Wednesday. The deal was secured during a meeting held earlier this week between Israeli Defence Minister Ehud Barak and US Middle East envoy George Mitchell, reported Maariv daily.

According to the deal, Israel would be enabled to continue work on some 700 buildings already under construction on the occupied Palestinian territory, or about 2,500 units.

So far, the administration of US President Barack Obama has demanded from Israel to stop all activity in the settlements.

"The Americans have adopted the position that Israel should not be required to halt settlement construction as a precondition, but rather only when the peace process with the Arab countries and the Palestinian Authority gets on track," the newspaper reported. It based it report on an unnamed senior Israeli political source as saying Obama could host an international conference where Israel would be required to freeze all settlement construction and "Arab states would express their commitment to the process and begin normalising their relations with Israel."

Asked about the report by AFP, Israeli government spokesman Mark Regev said that "contacts are continuing to arrive at an arrangement. The rest is speculation."